Rakesh Jhunjhunwala-backed Star Health IPO opens on November 30: Subscribe with caution, says Choice Broking

The initial public offer (IPO) of Rakesh Jhunjhunwala-backed Star Health and Allied Insurance Company is all set to hit open for subscription from Tuesday, November 30, 2021. The three-day IPO will close on December 2, 2021. The bidding for anchor investors will open on November 29. The IPO comprises fresh issue of equity shares worth Rs 2,000 crore and an offer-for-sale (OFS) of up to 58,324,225 equity shares by promoters and existing shareholders. 

Backed by Rakesh Jhunjhunwala and India’s first pure-play health insurance company, Star Health and Allied Insurance Company Ltd. (Star Health), is coming up with an IPO to raise Rs. 7,250crore. The price band is Rs. 870 - 900 per share. 

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Around 75 per cent of the issue size has been reserved for qualified institutional buyers (QIBs), 15 per cent for non-institutional investors and the remaining 10 per cent for retail investors. The public offer includes a reservation of shares worth Rs 100 crore for employees as well. 

Investors can bid for a minimum of 16 equity shares and in multiple thereof. The proceeds from the fresh issue would be used to augment the company's capital base, read the company's Draft Red Herring Prospectus (DRHP).  

Issue price at premium to the peer average

Saying, at higher price band of Rs. 900, Star Health is demanding a MCAP-to-net premium earned multiple of 10.3x, which is at premium to the peer average, Choice broking firm gave “Subscribe with Caution” rating for the issue. " Moreover, the demanded valuations is at elevated premium to recent capital issuance," it said.  

However, the broking firm observed that macros of the health insurance segment is very positive. Moreover, because of pandemic, awareness of the health insurance is at an all-time high, it said. "Star Health being a dominant player focusing on the retail health insurance is well placed to benefit from the expansion in the market. Pandemic despite positively impacting business growth, has impacted the profitability severely. In future occurrence of new virus wave or emergence of new variant will be a concern for the profitability. However, the risk will be lower as compared to levels witnessed during H1 FY22," it added.  

Risks & concerns as per Choice Broking 

• Unfavorable government policies and regulations 

• Continued risk from the Covid-19 pandemic 

• Unfavorable movement in the interest rates 

• Inability to manage hospital network and distribution channels 

• Difficulty in improving and maintaining the profitability 

• Competition 

Timeline of Start Health IPO 

Application start date: November 30, 2021 

Application end date: December 2, 2021  

Application beginning date: December 7, 2021 

Refund initiation date: December 8, 2021 

Allotment date: December 9, 2021 

Listing date: December 10, 2021 

Dates as per upstox 

As per Choice Broking, promoter currently holds 66.22% stake in the company and post-IPO this will come down to 58.30%. Public holding will increase from current 33.78% to 41.70%. 

Apart from other general insurers, there are standalone health insurance (SAHI) companies, which specialize in providing health insurance products & services. As of FY21, SAHI companies contributed 26% to the overall health insurance market. Star Health is the only SAHI company among the top-5 health insurance companies in India. "Established in 2006, it has grown to a largest private company in health insurance with a market share of 15.8% in FY21. In the last four years, its market share has increased by around 5ppts," brokerage firm report highlighted. 

(Disclaimer: The views/suggestions/advices expressed here in this article is solely by investment experts. Zee Business suggests its readers to consult with their investment advisers before making any financial decision.)